WBAAR Clarifies 5% GST on Cured, Graded & Butted Tobacco Leaves

Om Jai Balajee Construction Private Limited, Kolkata, proposed to diversify into the trading of cured tobacco leaves purchased directly from farmers. The company intended to sell the leaves without any processing other than storage and stocking, and in some cases to undertake minor activities such as grading based on size, colour and texture, bundling, or butting (removal of rough edges) to prevent transportation damage. No stemming, stripping, crushing or manufacturing was proposed.

The applicant sought clarification on GST rate in three situations, sale of cured tobacco leaves as purchased, sale after grading, and sale after butting. The Revenue relied on Patel Products v. Union of India to argue that certain processes may amount to production attracting higher tax. The Authority examined GST entries and HSN classification under 2401.

Main Issue: Whether cured tobacco leaves subjected to grading, bundling or butting (without stemming/stripping) remain “tobacco leaves” taxable at 5% under Entry 162 of Schedule I, or become “unmanufactured tobacco (other than tobacco leaves)” taxable at 28%.

Authority’s Decision: The Authority ruled in favour of the applicant, holding that tobacco leaves, even after curing, grading, bundling or butting, continue to qualify as “tobacco leaves” so long as they are not stemmed or stripped, and therefore attract GST at 5% (2.5% CGST + 2.5% SGST).

The Authority had drawn a distinction between tobacco not stemmed or stripped and tobacco partly or wholly stemmed or stripped; only upon stemming/stripping does the product lose its character as tobacco leaves.  Therefore, all three scenarios proposed by the applicant were held taxable at 5%, provided the leaves retain their identity and are not stemmed or stripped.

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